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Understanding online customers' ties to merchants: The moderating


influence of trust on the relationship between switching costs and e-loyalty

Article  in  European Journal of Information Systems · January 2013


DOI: 10.1057/ejis.2012.55

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European Journal of Information Systems (2014) 23, 185–204
& 2014 Operational Research Society Ltd. All rights reserved 0960-085X/14
www.palgrave-journals.com/ejis/

RESEARCH ARTICLE

Understanding online customers’ ties


to merchants: the moderating influence
of trust on the relationship between
switching costs and e-loyalty

Michelle Carter1, Abstract


Ryan Wright2, Fostering customer loyalty is a key objective for online businesses. Initial tran-
sactions with new customers are less profitable than transactions with existing
Jason Bennett Thatcher3 and customers, making loyalty an important strategy. Drawing on research examin-
Richard Klein4 ing online customer loyalty (termed e-loyalty), switching costs, and trust, this
study provides an empirical test of the relative influence of trust vs switching
1
Department of Information Systems & costs on e-loyalty for e-service providers. We further examine whether trust
Quantitative Analysis, University of Nebraska moderates the relationship between switching costs and e-loyalty. We propose
Omaha, Omaha, NE, U.S.A.; 2Isenberg School of that in the presence of high customer trust, e-service providers should have less
Management, University of Massachusetts need to rely on switching costs as a driver of e-loyalty. We test the hypothesized
Amherst, Amherst, MA, U.S.A.; 3College of
relationships using data collected from 299 repeat users of online travel
Business and Behavioral Science, Clemson
University, Clemson, U.S.A.; 4Chapman
services. Our results confirm that trust is a more important predictor of e-loyalty
Graduate School of Business Administration, than switching costs. In addition, we find that the impact of switching costs on
Florida International University, Miami, Florida, e-loyalty depends on the level of trust felt by customers. This study extends our
USA understanding of customer loyalty, switching costs, and trust in e-commerce
environments and provides practical, theory-driven guidelines to e-businesses
Correspondence: Michelle Carter, seeking to develop customer loyalty programmes.
Department of Information Systems & European Journal of Information Systems (2014) 23, 185–204. doi:10.1057/ejis.2012.55;
Quantitative Analysis, The Peter Kiewit published online 25 December 2012
Institute, College of Information Science &
Technology, University of Nebraska Omaha,
Omaha, NE 68182, U.S.A. Keywords: electronic commerce; customer loyalty; trust; switching costs; electronic
Tel: þ 1 402 554 4908; business strategies
E-mail: mscarter@unomaha.edu

Introduction
Fostering customer loyalty remains a key objective for online businesses
(Cyr, 2008). Customer loyalty is important because the cost of attracting
new customers is high relative to the cost of retaining one’s existing base
(Oliver, 1999). In the online environment, customer loyalty, termed
e-loyalty, refers to ‘an enduring psychological attachment by a customer to
a particular online vendor or service provider’ (Cyr et al, 2007, p. 44). Loyal
online customers are more likely to disregard information about offers from
other providers and tend to decline invitations to switch (Thatcher &
George, 2004). As a result, in online settings where alternate providers’ offers
are ‘only a few mouse clicks away’ (Srinivasan et al, 2002, p. 41), fostering
e-loyalty constitutes an essential strategy for vendors and/or service providers.
Received: 15 January 2012 Online providers often employ two strategies to foster e-loyalty, namely
Revised: 2 June 2012 (i) building customer trust (Luarn & Lin, 2003; Cyr, 2008), and (ii) creating
2nd Revision: 24 October 2012 costs that dissuade customers from switching providers (Shapiro & Varian,
Accepted: 7 November 2012 1999; Lin et al, 2006; Ray et al, 2012), called switching costs. Both strategies
186 Understanding online customers’ ties to merchants Michelle Carter et al

foster e-loyalty by engendering a customer’s commit- large numbers of viable substitutes may prove challen-
ment to the ongoing buyer-seller relationship. However, ging (Bendapudi & Berry, 1997; Chow & Holden, 1997).
because building trust gives rise to a different form Hence, the importance of extending understanding of
of commitment than switching costs, conceptually factors influencing customers’ intentions to remain with
(and practically) the strategies are distinct (Zins, 2001; incumbent online sellers or service providers. Moreover,
Fullerton, 2003; Evanschitzky et al, 2006). given differences in the cognitive processes and online
Trust building strategies promote affective (or willing) interventions suggested by trust and switching costs,
commitment – referred to as the ‘desire to maintain a the nature of the relationship between these strategic
relationship that the customer perceives to be of value’ approaches warrants consideration. This leads to our
(Evanschitzky et al, 2006, p. 1208) – based on assurances research question, how do trust, switching costs, and the
that customers will receive promised services. Through relationship between them influence e-loyalty in online
creating positive perceptions of its ability and willingness environments?
to deliver on promises, an online provider fosters trusting In this research paper, we investigate relationships
beliefs that positive outcomes are likely and that such among trust, switching costs, and loyalty within the
outcomes will continue in the future (Doney & Cannon, context of e-service providers – specifically online travel
1997). In this way, trust exerts a pervasive influence on service organizations. E-service providers pursue busi-
individual decision-making in e-commerce environments nesses models where core products/services can be
(Gefen et al, 2003b), ranging from the initial purchase digitized and distributed electronically, usually resulting
decision to e-loyalty (Chow & Holden, 1997; Luarn & in substantial cost savings (Luarn & Lin, 2003). For firms
Lin, 2003; Cyr et al, 2007; Cyr, 2008; Kim et al, 2009; operating in such markets, long-term success necessitates
Qureshi et al, 2009). In contrast, switching costs give rise building loyalty; repeat business helps predict sales,
to continuance (or unwilling) commitment – defined as provides a steady cash flow, and should subsequently
the intent to remain in a relationship that a customer lead to improved profits (Chow & Holden, 1997; Butcher
feels dependent upon or trapped in (Evanschitzky et al, et al, 2001).
2006). Here, one forces customers to remain loyal as long The results of our investigation find trust a more
as the ‘one-time costs that customers associate with y important predictor of e-loyalty than switching costs. In
switching from one provider to another’ (Burnham et al, addition, we demonstrate that the impact of switching
2003, p. 110) exceed the expected benefits resulting from costs on e-loyalty depends on the level of trust felt by
the change (Shapiro & Varian, 1999; Zins, 2001). By customers. Based on these results, we offer implications
underscoring customers’ prior investment in a relation- for practice and research. From a practice perspective,
ship, switching costs foster perceptions of negatives, or exploring trust and switching costs in relation to each
barriers, to changing providers, even in the case of other should extend our understanding of these impor-
dissatisfied customers (Lam et al, 2004). Conceptually, tant e-business strategies. Accordingly, e-service providers
the key difference between the two strategies is that trust might better allocate resources and foster e-loyalty. From
produces positive attitudes toward a relationship based a research perspective, the model and empirical approach
on emotional attachment, while switching costs result proposed by this study will further e-loyalty research
in dependence on a relationship based on economic by explicating the relationship between trust and switch-
circumstances. ing costs.
From a practical standpoint, given the focus on engen-
dering different types of commitment (i.e., the desire to Theoretical background
maintain vs the intent to remain (Evanschitzky et al, 2006)), There is growing interest in understanding the drivers of
initiatives aimed at building trust differ from those used e-loyalty – defined as an online customer’s ‘intention to
to create switching costs. Trust-building measures include visit a web site again or to consider purchasing from it in
being responsive to customer needs and providing con- the future’ (Cyr et al, 2007, p. 44) – due to costs associated
sistent service, whereas measures used to create switching with acquiring new customers and the ease with which
costs include increasing the perceived complexity of existing online customers can switch to competing pro-
product offerings and encouraging customers to use more ducts and services (Jones et al, 2000; Srinivasan et al,
services (Burnham et al, 2003; Ray et al, 2012). For 2002). To that end, Oliver’s (1999) loyalty framework
example, by bundling products and services, online identifies four sequential phases of loyalty development
providers may sensitize customers to potential costs (i.e., cognitive, attitudinal, conative, and behavioural), all
involved in searching for and evaluating information helpful in this endeavour. In this framework, each sub-
about new providers, as well as in learning to use sequent phase represents a deeper level of commitment
different web-based interfaces. While prior work has on behalf of the customer. In the context of e-service
suggested switching costs as a primary means of building providers, cognitive-based commitment simply refers to a
customer loyalty in traditional brick and mortar settings customer’s preference for one e-service provider over
(Jones et al, 2000; Burnham et al, 2003; Lam et al, 2004; alternatives based on available brand attribute informa-
Lin et al, 2006; Chang & Chen, 2008), implementing such tion. Attitudinal-based commitment (i.e., affective and
a strategy in an online environment characterised by continuance) reflects a person’s attitude toward an

European Journal of Information Systems


Understanding online customers’ ties to merchants Michelle Carter et al 187

e-service provider based on a history of prior experiences. services) or due to OTAs’ access to multiple carriers’ GDS
This phase incorporates cognition and emotion, since (Mead, 2002; Granados et al, 2012), these e-service
attitude includes customers’ evaluative (e.g., ‘I think this providers compete directly with one another for the repeat
e-service provider conducts its customer transactions business of price-sensitive customers armed with excellent
fairly’) and emotional (e.g., ‘I like talking to the people information regarding alternatives (Gasson, 2003). Given
where I get my service’) responses to a provider (Benamati readily available alternatives, the online travel market-
et al, 2010). Conative commitment refers to a customer’s place offers a particularly rich context for investigating
behavioural intention or motivation to repurchase. the impacts of trust and switching costs on customers’
Finally, behavioural commitment refers to the act of loyalty to e-service providers.
repurchasing (see Oliver (1999) for an in-depth review).
Contemporary research finds affective and continuance Trust and e-loyalty
commitment to be key drivers of conative commitment While trust definitions abound, we follow the work of
(Fullerton, 2003; Evanschitzky et al, 2006). Accordingly, McKnight and colleagues (e.g., McKnight & Chervany,
our study focuses on salient perceptions (i.e., attitudinal 2001; McKnight et al, 2002) in defining trust as ‘the
factors) that shape customers’ repurchase intention willingness of a party to be vulnerable to the actions of
through engendering these forms of commitment. another party based on the expectation that the other
Understanding relationships between drivers of will perform a particular action important to the trustor,
e-loyalty represents an important opportunity to advance irrespective of the ability to monitor or control that other
e-commerce research. While contemporary work has party’ (Mayer et al, 1995, p. 712). From this perspective, a
found trust and switching costs dominant drivers of higher level of trust in another party, or the trustee,
e-loyalty (Jones et al, 2000; Cyr, 2008; Ray et al, 2012), to increases an individual’s, or the trustor’s, willingness to
our knowledge, studies have yet to explore the relation- be vulnerable to that party’s actions.
ship between trust and switching costs and their relative Given inherent geographical dispersion and an absence
influence on e-loyalty in the presence of one another. of face-to-face contact (Kim et al, 2009), trust emerges as
Further, few works examine switching costs in online particularly salient in e-commerce transactions, charac-
contexts (Chen & Hitt, 2002; Ray et al, 2012). Thus, to terized by uncertainty and risk. Within the information
advance e-loyalty research, our study develops and systems (IS) literature, empirical studies have found that
proposes an empirical test of the relative effects of trust in specific Internet vendors directly influences Web
trust vs switching costs. Moreover, we answer calls for customers’ attitudes (Gefen et al, 2003b; Kim, 2008),
researchers to consider the ‘moderating effects of trust’ in purchase intentions (McKnight et al, 2002), actual pur-
the context of online purchasing (Kim et al, 2009, p. 253). chase behaviours (Lim et al, 2006), and future purchase
In particular, how trust moderates the relationship intentions with a respective vendor (Luarn & Lin, 2003;
between other factors and customer loyalty (Chow & Cyr et al, 2007; Cyr, 2008; Qureshi et al, 2009). Addi-
Holden, 1997). Specifically, we probe whether trust tionally, trust exhibits a strong association with affective
interacts with switching costs when influencing e-loyalty. commitment, an important antecedent of repeat pur-
We posit a stronger relationship between switching costs chase intentions (Morgan & Hunt, 1994; Zins, 2001;
and e-loyalty when customers express higher trust in a Fullerton, 2003; Evanschitzky et al, 2006).
provider. Evaluating this proposition will provide greater We conceptualize trust as a second-order concept
insight into the nature of online customer loyalty. Such reflecting an individual’s cognitive beliefs about another
an understanding is necessary to develop practical, party’s ability, benevolence, and integrity (Mayer et al,
theory-driven guidelines for e-businesses seeking to 1995; McKnight & Chervany, 2001; McKnight et al,
develop customer loyalty programmes. 2002). Consistent with commitment research (Zins,
2001; e.g. Evanschitzky et al, 2006; Fullerton, 2003), we
E-services in the context of the travel industry view trust formation as part of the attitudinal phase of
In this research paper, we investigate relationships loyalty development. Specifically, a high level of trust
among trust, switching costs, and e-loyalty within the fosters affective commitment by engendering a positive
context of online travel service providers. As outlined in attitude such that a trustor develops an emotional attach-
Table 1, information technologies have transformed the ment to the trustee (Whitten & Leidner, 2006). Conse-
travel industry. With the advent of global distribution quently, trust serves as an antecedent of conative loyalty,
systems (GDS) and the expansion of e-commerce, brick or e-loyalty. With respect to e-services, a high level of
and mortar travel agents (once essential to travel services trust in an e-service provider should increase the like-
provision) have become increasingly squeezed out of this lihood that the individual will develop an intention to
highly competitive marketplace (Gasson, 2003). Low repurchase from that provider (Cyr et al, 2007; Thatcher
overhead costs, the ability to offer multiple travel products/ et al, 2011). Table 2 details all three trust dimensions in
services, and widespread use of the Internet have resulted the context of online travel services.
in an industry dominated by airlines and online travel Trust has been identified as an important strategy for
agents (OTAs). Because airlines and OTAs offer some encouraging individuals to purchase travel services on-
distinct benefits to customers (e.g., airlines’ value-added line, due to the risks involved in divulging personal and

European Journal of Information Systems


European Journal of Information Systems

188
Table 1 The evolution of the travel industry (adapted from Gasson, 2003)
Evolution Airlines Traditional (brick/mortar) Online Individual customers

Understanding online customers’ ties to merchants


travel agents travel agents
Competitive analysis Implications for customer loyalty

1960s – Before Highly regulated, mostly Served individual customers Travel agents compete on local knowledge Customers’ trust in travel agents
computerization serving corporate market Asynchronous transactions. of airlines’ schedules and prices, local knowledge and service is an
Flights confirmed via as well as personal service. important part of travel agents
telephone by Travel agents essential to airlines’ flight achieving continued business.
airline-booking agents. booking process for individual customers.
Individual customers uninformed and weak.

1970s – Direct Airlines began offering travel Travel agents still essential Investment in training required to use DRS DRS lock customers in to
Reservation agents access to direct to airlines’ flight booking was high, raising barriers to entry for travel relationship with incumbent
Systems (DRS) reservation systems process. agents who were late adopters of the systems. travel agents.
(e.g., SABRE). DRS gave travel agents the Travel agents’ local knowledge less important
Deregulation created more ability to make flight due to airlines’ ability to offer dynamic pricing.
price and service competition bookings in real time. Large airlines, with highest penetration of DRS,
between airlines. Usually used only one DRS. most powerful.
DRS allowed dynamic Began targeting corporate Individual customers still uninformed and weak.
pricing of airline tickets. customers.

1980s – Global Evolution of DRS into GDS, With ability to sell multiple Barriers to entry lowered by GDS. As individual customers become

Michelle Carter et al
Distribution offering hotels, car rental, products in real time, Emergence of consolidators (‘bucket-shops’) more price-sensitive, building
Systems (GDS) rail travel, and cruise line travel agents became that bought blocks of unsold seats from trust and switching costs become
bookings, as well intermediaries. airlines and sold direct to customers at lower important strategic approaches for
as airline tickets. prices than traditional travel agents. traditional travel agents to avert
Travel agents diversified into selling multiple the threat posed by consolidators.
products/services.
Individual customers more price-sensitive.

2000s – Internet Airlines could serve individual Emergence of OTAs (e.g., Disintermediation by airlines and competition Building trust and switching costs
Technologies customers because of low cost Travolocity, Expedia, and by OTAs increasingly threatens traditional are important strategies for both
of processing transactions. Orbitz). travel agents and consolidators. airlines and OTAs seeking to foster
Direct selling to customers Low overhead costs. OTAs offer individual customers with loyalty in the online environment.
allowed airlines to offer prices OTAs provide access to convenience not available from airlines. Creating switching costs is
and value-added services not multiple GDS in real Individual customers increasingly familiar challenging in an online
available through traditional time – allowing for with using internet technologies. environment characterized by
travel agents. coordination of flights, large numbers of viable substitutes.
car hire, hotels, etc.

Current structure Direct selling to companies Serving companies and Airlines and OTAs directly compete for the
of travel industry and price-sensitive individuals. price-sensitive individuals. business of price-sensitive individuals.
Table 2 The impact of interventions on trusting beliefs

Understanding online customers’ ties to merchants


Definition Trust building interventions Impact on trusting beliefs

Ability Refers to trustor perceptions about a trustee’s Quick and secure transaction processing (Kim, Customers who believe that an e-service provider
capacity to conduct transactions effectively and 2008) can foster perceptions of competence. has the capabilities necessary to complete transac-
reliably (Doney & Cannon, 1997). Institutional endorsements or links with other tions are more likely to form repurchase intentions.
Focuses on providers’ competence in providing reputable service providers reinforce perceptions In the context of online travel services, an absence
goods and services (McKnight & Chervany, 2001). of a provider’s ability to conduct transactions of errors in completing transactions, together with
Perceptions may be based on prior experience or (McKnight & Chervany, 2001). immediate confirmation of reservations are likely to
institutional endorsements (Gefen et al, 2003a; be important indicators of a provider’s ability to
McKnight et al, 2002; Kim & Benbasat, 2006; conduct transactions.
Pavlou, 2002; Pennington et al, 2003).

Benevolence Extent to which the trustee is genuinely interested Service quality can be manifested through website Customers who perceive their e-service providers as
in the trustor’s welfare and motivated to act in the attributes, such as navigational structure (Vance benevolent are less inclined to guard against
trustor’s best interests, beyond trustee profit et al, 2008), as well as offering excellent customer opportunistic behaviours and more likely to form
motives (Bhattacherjee, 2002; Doney & Cannon, service. Through these interventions providers repurchase intentions.
1997; Mayer et al, 1995). (i) demonstrate openness and empathy toward Travel websites are information intensive. Online
customer needs and concerns, and (ii) proactively travel service providers can demonstrate benevo-
make good-faith efforts to alleviate customer lence toward price-sensitive customers by mini-

Michelle Carter et al
concerns (Bhattacherjee, 2002; McKnight & mizing time/effort involved in searching, providing
Chervany, 2001). customer advice/support, as well as links to online
check-in services, etc.

Integrity Implies volitional will on the part of the trustee and Self-reported policies, such as customer service Self-reported policies and provision of third-party
refers to customer perceptions that the provider standards and terms of use relating to exchange of seals help build trust by reducing customer
can be relied upon to act honestly, keep commit- private customer information or third-party seals perceptions of uncertainty and transaction risk
ments, and adhere to an acceptable set of (e.g., TRUSTe), can be used to convey integrity within the online environment (Gefen, 2002).
principles or exchange policies during and after the (Bhattacherjee, 2002; McKnight & Chervany, Because providing personal information is fre-
transaction (Mayer et al, 1995; Crosby et al, 1990; 2001). quently required to make travel reservations, online
Jarvenpaa et al, 2000). travel service providers can foster beliefs about their
European Journal of Information Systems

integrity through displaying detailed privacy state-


ments about the information they collect, what
information is shared, and with whom, as well as
how customers can access the information they
have provided.

189
190 Understanding online customers’ ties to merchants Michelle Carter et al

financial information during the reservation process For some customers, the loss of identification with a
(Bart et al, 2005). To that end, trust building interven- familiar brand may outweigh any potential price benefits
tions – such as quick and secure transaction processing of making the switch from an airline to an OTA with
(Kim, 2008), customer advice, and privacy policies multiple pricing offers.
(McKnight & Chervany, 2001; Bhattacherjee, 2002; Bart In sum, we conceptualize switching costs as an aggre-
et al, 2005) – help foster trust in an online provider that gate of the one-time financial, procedural, and relational
reflects cognitive beliefs about the provider’s ability, costs that the customer associates with the process of
benevolence, and integrity (see Table 2). Trust engenders changing service providers. Hence, switching cost types
affective commitment, which, in turn, may cause a are, in turn, multifaceted. Customers will not switch pro-
customer to report an intention to visit the provider’s viders given prohibitively high one-time, as distinct from
website again and to consider future purchases of services ongoing, costs associated with the change (Burnham
from that provider. On this basis, we propose that a et al, 2003). Thus, in the following hypothesis we propose
customer who has formed requisite trusting beliefs in a that customers who perceive higher switching costs tend
specific online provider should be less likely to switch to stay with an incumbent e-service provider.
due to difficulties associated with establishing new
trusting relationships in a context characterized by Hypothesis 2: Switching costs will positively influence
uncertainty and risk (Kim et al, 2009). e-loyalty toward an incumbent e-service provider.

Hypothesis 1: Trust will positively influence e-loyalty


toward an incumbent e-service provider. The relative strength of trust vs switching costs on
e-loyalty
Loyalty research has identified two types of customer
Switching costs and e-loyalty commitment influencing repurchase intentions, namely,
Switching costs, which induce continuance commit- affective and continuance (Bendapudi & Berry, 1997; Zins,
ment, are also viewed as a key driver of e-loyalty (Lam 2001; Fullerton, 2003; Evanschitzky et al, 2006). Affective
et al, 2004; Lin et al, 2006; Chang & Chen, 2008; Ray et al, commitment produces an enduring positive attitude
2012). Burnham et al (2003) identified three switching toward a brand, service, or provider, based on emotional
costs that collectively dissuade customers from changing attachment. By contrast, continuance commitment, based
providers, specifically financial, procedural, and rela- on cost-benefit calculations, results in the customer
tional costs. In Table 3, we review each of in greater perceiving the cost of switching as too high and
detail, providing examples in the context of online travel demonstrating a preference for maintaining the long-
services. Given that switching costs incorporate emo- term relationship. While continuance commitment can
tional as well as financial barriers to changing providers, also result in positive affect (e.g., perceptions of relational
previous studies have considered switching costs as an switching costs), such bonds rely more on perceived
attitudinal phase construct within Oliver’s (1999) loyalty dependence than on positive emotional ties (Bendapudi
development framework (Chang & Chen, 2008). & Berry, 1997).
Financial costs relate to loss of accrued benefits and/or Prior research supports the view that not all forms of
financial charges, or consequences, resulting from switch- customer commitment create equal value for organiza-
ing providers. With regard to online travel services, these tions. Studies examining the relative influence of affective
costs include loss of frequent flier miles, loss of access to and continuance commitment on loyalty find commit-
executive lounges, imposition of membership fees, and/ ment based on free-will and choice a stronger predictor of
or loss of membership reward coupons. Procedural costs repurchase intentions and behaviours than commitment
focus attention on switching activities (Burnham et al, based on inducement (Fullerton, 2003; Evanschitzky et al,
2003) and include costs incurred in searching for, and 2006). Moreover, these studies provide evidence that with
evaluating, information about providers together with readily available alternate products and services, mea-
the time and effort involved in acquiring the skills sures to promote continuance commitment (e.g., switch-
necessary to use a new service or product (e.g., learning ing costs) may prove less effective at fostering loyalty
to create travel itineraries using a different Web-based than those designed to engender emotional attachment
interface). Relational costs consist of personal- and brand- (e.g., trust) to a particular brand or provider (Dowlling &
relationship loss costs (Burnham et al, 2003). In contrast Uncles, 1997; Fullerton, 2003; Evanschitzky et al, 2006).
to trust, which promotes positive emotional attachment Given (i) trust and switching costs as strategies for
(Whitten & Leidner, 2006) and increases a customer’s building affective commitment and continuance com-
willingness to revisit a website (Cyr et al, 2007; Thatcher mitment, respectively, and (ii) readily available compar-
et al, 2011), relational switching costs emphasize the able alternatives in an online environment, we posit trust
loss of provider-based or brand-based relational bonds and switching costs exert different effects on e-loyalty. In
as a result of not revisiting, (e.g. a loss of comfort particular, we propose that because trust fosters affective
from breaking personal bonds with a provider or with a commitment, it will have a stronger impact on e-loyalty
brand or corporate public image; Burnham et al, 2003). than switching costs, as stated.

European Journal of Information Systems


Table 3 The impact of interventions on perceptions of switching costs
Definition Switching costs interventions Impact on perceptions of switching costs

Understanding online customers’ ties to merchants


Financial Relate to loss of accrued benefits (i.e. benefit loss costs) and/ Loyalty programmes that ‘confer Benefit loss costs associated with online travel include
or financial charges or consequences (i.e. monetary loss costs) special benefits to customers who loss of loyalty programme benefits such as frequent
resulting from switching providers. have achieved a certain “status” flier miles, access to executive lounges, fast check-in,
1. Benefit loss costs arise when customers lose accumulated based on their cumulative or and upgrade certificates. Monetary loss costs can also
points, benefits, or discounts by switching to an annual patronage levels’ be incurred if a customer has paid membership fees
alternative provider. (Fullerton, 2003, p. 342) associated with the programme.
2. Monetary loss costs are ‘one-time financial outlays that
are incurred in switching providers other than those used
to purchase the new product itself’ (Burnham et al, 2003,
p. 111).

Procedural Time and effort costs involved in switching providers Increased product complexity Making online travel arrangements potentially involves
(Burnham et al, 2003). Includes four distinct facets of (Burnham et al, 2003): the extent specifying a large number of attributes (e.g., flight
procedural switching costs, which are relevant to e-service to which a customer perceives date/time, seating, meals, luggage, car rental, and/or
providers: that a product/service is difficult hotel preferences). The more travel services a provider
1. Economic risk costs are associated with the financial, to understand or use. can bundle together, the greater customers’ percep-
performance, and/or convenience risks incurred when tions of the time and effort involved in evaluating and
switching providers. learning to use alternate services.
2. Evaluation costs include costs associated with searching

Michelle Carter et al
for, and evaluating, information about alternative provi-
ders.
3. Set-up costs are associated with initiating a relationship
with a new provider (e.g. creating a user profile and
configuring software or smart phone applications).
4. Learning costs comprise the costs involved in acquiring
the skills necessary to use a new service or product
(e.g. learning to create travel itineraries using a different
Web-based interface).

Relational ‘Involves psychological or emotional discomfort due to the Breadth of use (Burnham et al, Using a broader range of the travel services (e.g.
European Journal of Information Systems

loss of identity and breaking of bonds’. Consist of personal- 2003): the extent to which a flights, car rental, hotels, credit cards, and insurance)
and brand-relationship loss costs (Burnham et al, 2003, customer uses a broad range offered by an incumbent provider promotes identifi-
p. 111). of products/services offered cation with the brand/service, which manifests as
1. Personal relationship loss costs: The comfort of by a provider. habit, inertia, and dependence on the relationship
interacting with a familiar provider services may be lost Personalization (Burnham et al, (Dowlling & Uncles, 1997).
when switching. 2003): the extent to which a When a travel website offers personalized recommen-
2. Brand-relationship loss costs occur when customers product/service can be adapted dations based on previously selected preferences, it
break bonds with a provider whose brand, or corporate to meet the individual needs results in increased feelings of personal and brand
public image, they identify with. of a customer. identification (Burnham et al, 2003)

191
192 Understanding online customers’ ties to merchants Michelle Carter et al

Hypothesis 3: The relationship between trust and e-loyalty


will be stronger than the relationship between switching
costs and e-loyalty.

The relationships between trust, switching costs, and


e-loyalty
Owing to differences in the cognitive processes and
online interventions suggested by trust and switching
costs, the nature of their relationship warrants considera-
tion. In particular, understanding whether an interactive
or causal relationship exists between the two strategies
constitutes an important line of inquiry. To our knowl-
edge, no empirical studies have explicitly examined
Figure 1 Research model.
the relationship between trust and switching costs in
the online context. However, evidence suggests these
strategies interact to produce combined effects on report a higher degree of e-loyalty than individuals who
e-loyalty that differ from the sum of their separate effects. do not trust their provider. This implies that e-service
Fullerton’s (2003) examination of different forms of providers may bolster e-loyalty by employing trust-building
commitment found a significant interaction between strategies, such as responsiveness to customers’ indivi-
customers’ affective and continuance commitment. Simi- dual preferences, in addition to fostering brand identifi-
larly, two studies investigating customer loyalty in offline cation or to providing economic incentives. On this
contexts – that is, mobile phone (Aydin et al, 2005) and basis, we propose in the following that switching costs’
financial planning services (Sharma & Patterson, 2000) influence on e-loyalty is contingent upon the trust felt by
industries – reported a significant interaction between a customer.
trust and switching costs. Finally, in the context of
relationship marketing, Joshi & Arnold (1997) pro- Hypothesis 4: The relationship between switching costs
posed and found that relational norms, in terms of what and e-loyalty will be stronger (weaker) when trust is high
constituted appropriate behaviour in buyer-supplier (low).
relationships, moderated the relationship between
dependence on the relationship and actual switching An alternative line of reasoning suggests that rather
behaviours. than moderating switching costs’ influence, strategies
Consistent with these studies, we evaluate whether aimed at building trust may give rise to perceptions of
trust and switching costs interact to influence customers’ switching costs (Saparito et al, 2004). In a study examin-
loyalty to e-service providers. Given research finding ing relationships between trust, loyalty-building strate-
positive emotional ties a stronger determinant of beha- gies, and switching in the context of small business
viour than dependence or economic incentives (Dowlling patronage of banks, Saparito et al (2004) found that trust
& Uncles, 1997; Gwinner et al, 1998), we focus on reduced the likelihood that a firm would switch banks.
whether trust suppresses or amplifies the relationship Applied to online travel services, this suggests greater cost
between switching costs and e-loyalty. As hypothesized, sensitivity (e.g., to the loss of frequent flier miles) for
customers expressing high trust in an incumbent online individuals who express higher trust in an airline or OTA
travel services provider (i.e., airline or OTA) should when purchasing travel services from an alternative
exhibit a higher degree of affective commitment to the provider. Accordingly, a competing hypothesis posits
relationship, particularly given perceived risks associated that trust strengthens an individual’s resolve to stay in a
with divulging personal and financial information relationship with an incumbent provider by increasing
during the reservation process (Bart et al, 2005). Affective perceived costs associated with change.
commitment, in turn, should make comparable alter-
native providers appear less attractive (Oliver, 1999). For Hypothesis 4alt: Trust will positively influence perceptions
example, even while OTAs provide customers with access of switching costs.
to multiple airlines’ pricing via access to their Global
Distribution Systems – underscoring the interchangeabil- We present our research model in Figure 1.
ity of airlines and OTAs with respect to pricing (Gasson,
2003; Granados et al, 2012) – a customer with strong Research Method
emotional ties to a particular airline may view purchasing To evaluate e-loyalty in the changed marketplace of
services from an unfamiliar OTA as riskier, thereby, online travel services, in 2009 we collected data using a
amplifying the natural effects of switching costs on e-loyalty. web-based survey from a population of experienced
Thus, for the same level of switching costs, individuals online consumers. Our panel was recruited by a market-
expressing greater trust in their e-service provider should ing firm that drew a representative sample of travellers

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Understanding online customers’ ties to merchants Michelle Carter et al 193

Table 4 Sample characteristics guidance on how to estimate our measurement model


(Polites et al, 2012; Wright et al, 2012). Edwards (2001) as
Count Percentage
well as Law & Wong (1999) prescribe three primary
Gender approaches to modelling higher-order factors, namely,
Male 175 58.5 (i) superordinate, (ii) aggregate, and (iii) a mixture of
Female 122 40.8 superordinate and aggregate modelling. The relationships
No response 2 0.7 between dimensions and the respective latent variables
distinguish these approaches from one another (Law &
Age Wong, 1999; Edwards, 2001; Polites et al, 2012). Specifi-
o25 2 0.7
cally, causality differentiates two distinct types of higher-
25–29 36 12.0
order modelling (i.e., superordinate and aggregate). The
30–34 32 10.7
superordinate approach refers to the presence of con-
35–50 115 38.5
50+ 112 37.5
structs reflected in the lower order dimensions (i.e.,
No response 2 0.7 Latent Variable (LV)-Dimensions), while the reverse
causality applies in the case of the aggregate model (i.e.,
Education LV’Dimensions). Mixed model higher order constructs
High school 87 29.1 include both reflective and formative dimensions (e.g.,
Associates 74 24.7 elements of superordinate and aggregate). In this study,
Bachelors 82 27.4 we follow prescriptions offered by Polites et al (2012) and
Masters 36 12.0 conceptualize high-order trust as superordinate and
Higher than Masters 17 5.7 switching costs as aggregate constructs, respectively.
No response 3 1.0
Trust
Ethnicity
Consistent with trust theories (Mayer et al, 1995;
Caucasian/non-Hispanic 251 83.9
McKnight & Chervany, 2001; McKnight et al, 2002),
Hispanic 9 3.0
many studies conceptualize trust as manifest in custo-
African American 17 5.7
Asian 7 2.3 mers’ beliefs about e-service provider characteristics,
Other 12 4.0 namely, ability, benevolence, and integrity (Bhattacherjee,
No response 3 1.0 2002; Lowry et al, 2008; Vance et al, 2008; Wang &
Benbasat, 2008; Klein & Rai, 2009; Thatcher et al, 2011).
Preference Serva et al (2005) argued that trust’s form (e.g., first-order
Online travel website 136 45.0 aggregate or second-order superordinate) depends on the
Air carrier’s website 163 55.0 specific research context. In an online setting, Serva et al
(2005) further suggest, ‘the second-order model is a
Purpose consumer’s composite belief (i.e., superordinate) that an
Personal only 32 11.0 online vendor will act in a beneficial manner, where
Business and personal 261 87.0 changes in trustworthiness are reflected in all three sub
Business only 6 2.0
dimensions’ (p. 102). Hence, we operationalize trust
Total subjects 299
as a superordinate construct, with consumer trust in the
OTA reflected in each of its dimensions (i.e., LV -
Dimensions).
who used OTAs (e.g., Expedia.com, Orbitz.com, Priceline
.com, and Hotwire.com) and/or airline carriers’ websites Switching costs
(e.g., Delta Airlines and American Airlines) to book flights In contrast, switching costs dimensions should not
from a panel of 2.5 million Internet users. Potential co-vary. Based on prior literature, interviews, and focus
subjects confirmed having travelled in the past year. groups, Burnham et al (2003) identified eight separate
Of those answering ‘yes’ to this screening question, indicators of switching costs that make up three distinct
299 completed the survey for a response rate of 82%. second-order dimensions, namely financial, procedural,
The survey asked subjects to state their preferred method and relational switching costs (see Figure 2). These
of buying airline tickets online (i.e., OTA or airline distinct second-order dimensions aggregate to shape
carrier). Based on this information, subjects answered consumer perceptions of the overall one-time costs
questions related to their preferred purchasing method. associated with switching providers (i.e., LV’Dimen-
Table 4 reports sample characteristics, including age, sions) (Burnham et al, 2003). For this reason, we model
gender, ethnicity, education, preference for online inter- switching costs as a third-order aggregate construct.
action, and purpose of travel.
As our research model incorporates second (i.e., trust) Model testing
and third (i.e., switching costs) order constructs, we Structural equation modelling (SEM) techniques can eval-
examined literature on multidimensional constructs for uate higher-order models, with models that incorporate

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194 Understanding online customers’ ties to merchants Michelle Carter et al

multi-dimensional constructs often employing covariance- (i.e., AVE40.50, ICR40.8, and a40.70; see Appendix A)
based SEM tools. However, issues related to model com- for discriminant and convergent validity as well as reli-
plexity, distribution of data, and identification, preclude ability (Fornell & Larcker, 1981; Chin, 1998). As depicted
use of such techniques to estimate our measurement and in Table 5, the square roots of the AVEs for latent variables
structural models (Wold, 1985). Specifically, since the exceed all off-diagonal elements, further supporting
switching costs construct relates to only one endogenous discriminant validity (Chin, 1998). Additionally, all item
variable, covariance-based methods potentially fail to loadings exceeded 0.707 (significant at Po0.01), support-
identify our nomological network (Jöreskog & Goldberger, ing the conclusion that construct measures exhibited
1975; MacCallum & Browne, 1993; Diamantopoulos, discriminant and convergent validity (Hair et al, 1998).
2008). As an alternative, we evaluated our research model Finally, we calculated variance inflation factors (VIF) and
using partial least squares (PLS) – a component-based tolerance for all the higher-order factors using the latent
SEM technique (Chin et al, 2003; Ringle et al, 2005; variable scores, with all falling in acceptable ranges
Wetzels et al, 2009). We further conducted common (Kutner, 2005). Collectively, these analyses provide
method bias analyses, reporting these results in Appendix evidence of the soundness of our first-order measurement
B. We used XLStat 2012 to execute all PLS structural and model.
measurement models. In our next step, we evaluated the second-order
We employed a multi-step process to evaluate the measurement model. The two main ways of modelling
measurement model (see Wetzels et al (2009) and Wright higher-order constructs in PLS include hierarchical
et al (2012) for detailed explanations of higher-order re-use of items or the superblock approach (Wright
construct modelling using PLS). In our initial step, we et al, 2012). We adopted the superblock approach
estimated a model with no structural relationships described by Chin (2010) and Wright et al (2012). A
between constructs to assess the validity of our construct first-order model extracted latent variable scores, while
measures. In this step, the average variance extracted a subsequent model used the second-order latent
(AVE), internal composite reliability (ICR), and Cron- variable scores from the first. We then executed the
bach’s alphas for each of the first-order dimensions third-order model. We calculated higher-order blocks
all met, or fell close to, recommended heuristics (called superblocks) using the lower-order latent vari-
able scores. For example, latent variable scores were
calculated for the first-order trust components (e.g.,
ability, benevolence and integrity). We subsequently
used these three latent variable scores to model the
second-order trust construct.
As a superordinate second-order construct, trust should
shape the value of its first-order dimensions (i.e., ability,
benevolence, and integrity should co-vary) (Edwards,
2001). The interpretation and analysis of the second-
order, superordinate measurement model is, therefore,
comparable to a first-order reflective measurement model.
Hence, we evaluated each dimension’s loadings on
the second-order factor. Ability (b ¼ 0.96), benevolence
Figure 2 Switching costs (Burnham et al, 2003). (b ¼ 0.95), and integrity (b ¼ 0.97) loaded highly on the

Table 5 Inter-correlations of latent variables for first-order constructs


Constructs M SD 1 2 3 4 5 6 7 8 9 10 11 12

1. e-loyalty 3.66 1.01 0.96


2. Benevolence 3.02 0.67 0.37 0.90
3. Integrity 3.10 0.82 0.40 0.74 0.87
4. Ability 3.07 0.79 0.40 0.68 0.78 0.91
5. Personal Rel. Loss 3.13 0.88 0.08 0.22 0.13 0.10 0.79
6. Brand Relationship 2.67 0.94 0.17 0.28 0.19 0.16 0.59 0.85
7. Set-up Costs 2.91 0.98 0.06 0.06 0.05 0.02 0.35 0.13 0.85
8. Learning 2.92 0.91 0.10 0.10 0.09 0.08 0.26 0.11 0.60 0.82
9. Evaluation 3.67 0.96 0.06 0.08 0.07 0.05 0.27 0.10 0.45 0.45 0.67
10. Economic Risk 3.74 0.81 0.19 0.21 0.17 0.15 0.37 0.24 0.39 0.39 0.54 0.71
11. Monetary Loss 3.54 0.88 0.02 0.03 0.02 0.01 0.35 0.15 0.38 0.22 0.20 0.27 0.74
12. Benefit Loss 3.66 0.82 0.10 0.06 0.09 0.07 0.21 0.18 0.25 0.23 0.14 0.24 0.41 0.72
AVE along diagonal is bold. All correlations are squared. All construct correlations are significant at Po0.01.

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Understanding online customers’ ties to merchants Michelle Carter et al 195

Figure 3 Structural model.


Note: The dashed lines represent lower order factors, the paths from the lower order factors to the high order factors are denoted with
the respective beta weights and * indicates Po0.01.

superordinate trust construct. Further, trust’s AVE (0.80) We calculated the indirect effect of economic risk
and ICR (0.98) exceeded recommended cut-off values of costs on the third-order switching costs construct
0.5 and 0.8, respectively (Fornell & Larcker, 1981; Chin, using the beta weight of the direct path from eco-
1998). This cumulatively suggests integrating trust as a nomic risk to procedural costs and, subsequently,
second-order construct in our research model. multiplying this path by the direct path of procedural
In contrast, as a third-order aggregate construct, costs to overall switching costs (i.e., b ¼ 0.36  0.57 ¼
financial, procedural, and relational costs dimensions 0.21). Cohen (1988) categorizes such a result as a
should form switching costs (Polites et al, 2012). medium effect, where a small effect falls between
Analogous to evaluating indicators of formative con- 0.02 and 0.15, medium between 0.15 and 0.35, and
structs, the dimension weights and their significance large exceeds 0.35. Given significant weights, a med-
serve as indicators of the strength of each dimension’s ium to large amount of explained variance in the
relationship to the higher-order switching costs construct higher order construct, as well as discriminant and
(Petter et al, 2007; Wetzels et al, 2009). By way of an convergent validity at the first-order level (Wetzels
illustration, examining procedural switching costs, one et al, 2009), we deem our third-order conceptualization
dimension of the switching costs construct (see Figure 3 appropriate.
for the path model), which has a significant path weight Our structural model explained substantial variance
equal to 0.70. When controlling for financial and in e-loyalty (R2 ¼ 0.46) (see Figure 3). Trust exhibited a
relational costs, this weight suggests that procedural positive relationship with e-loyalty (H1: b ¼ 0.55,
costs directly influence the variance in switching costs Po0.01), as did switching costs (H2: b ¼ 0.13, Po0.01).
(Edwards, 2001). When evaluating procedural costs, Hypothesis 3 posited a stronger relationship between
economic risk costs equal 0.36, representing the ‘partia- trust and e-loyalty than between switching costs and
lized effect of the indicator on its intended construct e-loyalty. Accordingly, we compared the R2 for e-loyalty
controlling for the effect of all other indicators of that with, and without, each of the independent variables
construct’ (Cenfetelli & Bassellier, 2009). included in our model (Chin, 1998; Cyr, 2008), where the

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196 Understanding online customers’ ties to merchants Michelle Carter et al

effect size of each independent variable ( f 2) is calculated


as follows:
f 2 ¼ ½ðR2included  R2excluded Þ=1  R2included ;

f 2 TRUST ¼ ½ð0:46  0:23Þ=0:54 ¼ 0:43;

f 2 SWITCHING COSTS
:
¼ ½ð0:46  0:44Þ=0:54 ¼ 0:04

Using Cohen’s (1988) interpretation of effect size (i.e.,


f 2 between 0.02 and 0.15 for a small effect size; between
0.15 and 0.35 for medium; and greater than 0.35 for
large), results support our third hypothesis – with the
effect for trust on e-loyalty (i.e., a large effect with
f 2 ¼ 0.43) greater than the effect of switching costs on Figure 4 Interaction graph.
e-loyalty (i.e., a small effect with f 2 ¼ 0.04). Further, in
accordance with Hair et al (2011), we tested for predictive
relevance using Stone-Geisser’s Q2. We employed a Then, we categorized trust by customer into groups
blindfolding procedure to determine whether the model plus, or minus, one standard deviation from the mean
could reproduce data points that were explicitly excluded (see Figure 4). The categorization found 51 subjects to be
(e.g., every 8th data point) with much greater accuracy high trust individuals and 22 subjects to be low trust
than simple missing data techniques, such as mean replace- individuals. Employing the standardized data, we plotted
ment. In this step, communalities and redundancies for the high (i.e., þ 1 std. dev.) and low (i.e., 1 std. dev.)
e-loyalty equalled 0.963 and 0.441 respectively, support- trust groups using switching costs and e-loyalty as axes.
ing their predictive relevance. Figure 4 depicts the simple effects of switching costs
The positive moderation path coefficient (b ¼ 0.14, and trust. We found higher e-loyalty associated with
Po0.01) provides initial support for Hypothesis 4, which either (i) the combination of high trust and low switch-
posits that trust positively moderates the relationship ing costs or (ii) the combination of low trust and high
between switching costs and e-loyalty. In essence, the switching costs. The graph shows lower e-loyalty in the
moderation path coefficient represents the effects of an presence of the combination of either (i) high levels of
interaction variable (i.e., the product of trust and switch- both trust and switching costs or (ii) low levels of both
ing costs) on e-loyalty, holding the independent variables trust and switching costs. Our examination of the simple
(i.e., trust and switching costs) constant at the mean. This effects finds switching costs and trust are compensatory,
result implies that, at average levels of trust and switch- rather than supplementary, strategies for fostering
ing costs, these strategic approaches exert joint effects e-loyalty, except at average levels of both constructs.
on e-loyalty greater than the sum of each construct’s Since we posited that trust would positively moderate the
individual effects. Further, we conducted a Wald coeffi- relationship between switching costs and e-loyalty at all
cient test to check if the two main effects had different levels of switching costs, these results only partially
magnitudes. The results indicated rejecting the null support our fourth hypothesis.
hypothesis (Fdiff ¼ 113.67, Po0.01) for the same effect To test whether trust primes perceptions of switching
size. Thus, the data support concluding trust has stronger costs, we proposed Hypothesis 4alt, which stated that
impact than switching costs.1 trust positively influences switching costs. Our analysis
However, to appropriately characterize the nature of does not find a significant path coefficient for the
the interaction between trust and switching costs, as relationship between trust and switching costs in our
articulated in our hypothesis, we sought to determine structural model, Thus, Hypothesis 4alt was not sup-
if the effect of switching costs on e-loyalty changes ported. Table 6 presents a summary of hypotheses and
depending on the level of trust felt by a customer. To results.
assess this, we first standardized the trust, e-loyalty, and
switching costs variables. Next, we regressed switching
Post-hoc testing
costs, trust, and their interaction on e-loyalty. The
With PLS, the model’s power to detect the probability
regression model and interaction term were again
of rejecting a false null hypothesis, or a type II error
significant (a ¼ 0.01), consistent with our PLS model.
(Marcoulides & Saunders, 2006), constitutes a reasonable
concern. Hence, methodological studies strongly recom-
1
We thank our anonymous reviewer for helping us clarify this mend a power analysis when using PLS for non-
analysis through the use of a Wald test. significant relationships (Wetzels et al, 2009). Moreover,

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Understanding online customers’ ties to merchants Michelle Carter et al 197

Table 6 Summary of hypotheses and results


Hypothesis Supported?

1. Trust will positively influence e-loyalty toward an incumbent e-service provider. Yes
2. Switching costs will positively influence e-loyalty toward the incumbent e-service provider. Yes
3. The relationship between trust and e-loyalty will be stronger than the relationship between switching costs and e-loyalty. Yes
4. The relationship between switching costs and e-loyalty will be stronger (weaker) when trust is high (low). Partial
4alt. Trust positively influences switching costs No

given an interaction as our model’s main element, therefore, teasing out their relative effects on e-loyalty
understanding the model’s power (1b) is critical (Chin helps to explain which type of commitment – affective or
et al, 2003). We calculated power using a post-hoc method, continuance – exerts a greater influence on e-loyalty
which employs (i) sample size, (ii) the alpha level, and development. This study provides evidence that,
(iii) the effect size (Kline, 2004). The effect size measures although both can improve e-loyalty, trust and switching
the relationship between independent and dependent costs are not equally beneficial strategies for e-service
variables for each hypothesis with the output as a providers. Our results show that trust has a stronger effect
correlation coefficient. Pearson’s product-moment power on e-loyalty than switching costs, offering empirical
table can then determine the probably of a type II error. support for the view that willing commitment is a more
Considering Hypothesis 4, Pearson’s correlation between salient predictor of conative (i.e., intention-based) loyalty
trust and switching cost equals 0.393, with a sample size in online settings (Chow & Holden, 1997; Zins, 2001;
of 299 and alpha of 0.05. Using the G*Power (Erdfelder Fullerton, 2003; Evanschitzky et al, 2006). Second, by
et al, 1996), we found the power of this test equal to illuminating the interaction between the two strategies,
0.913. Social science research traditionally accepts a this study identifies how switching costs and trust act as
power value of 0.80 or greater (Cohen, 1988). boundary conditions with respect to each other’s influ-
In prior research, the notion of experience, when ence on e-loyalty. Specifically, the impact of switching
operationalized as satisfaction with a system (Cyr, 2008) costs on e-loyalty depends on the level of trust felt by
or quality of service (Gefen, 2002), has demonstrated a customers – and vice versa. For example, absent trust,
significant relationship with e-loyalty. In our model, we switching costs do positively impact customers’ repurch-
operationalized experience through a quantitative mea- ase intentions. However, when customers express higher
sure of user interactions, namely, transaction frequency. trust in e-service providers, they relay that building high
Beliefs about trust and switching costs form over time; switching costs into the relationship has a harmful effect
hence, one would associate trust with greater transaction on e-loyalty. This finding mirrors research suggesting that
frequency with a respective e-service provider (Mayer a high level of continuance commitment undermines
et al, 1995; McKnight & Chervany, 2001; McKnight et al, the positive impact of affective commitment on cus-
2002; Vance et al, 2008; Wang & Benbasat, 2008). As tomer retention (Fullerton, 2003; Aydin et al, 2005). The
expected, transaction frequency significantly relates to implication being, trust and switching costs are com-
trust (b ¼ 0.13, Po0.01) and switching costs (b ¼ 0.27, pensatory, and ultimately incompatible, strategies for
Po0.01). However, the construct does not significantly fostering e-loyalty. These findings have important
influence e-loyalty. Consistent with control variables, implications for e-service providers aiming to foster
transaction frequency added relatively little explained such loyalty.
variance to our overall model (i.e., [R2Original Model E-service providers should welcome the finding that
R2 Model with Transactional Frequency] by [1R2 Original Model], trust has a greater effect on e-loyalty than switching
or [0.460–0.457]/[1–0.460] ¼ 0.006). Using ANOVA, we costs. Given that trust contributes to customers’ will-
tested for differences in e-loyalty between subjects that ingness and desire to engage in long-term relationships
purchased tickets from an OTA as opposed to those using (Bendapudi & Berry, 1997; Fullerton, 2003; Evanschitzky
an airline carrier’s website. We similarly found no et al, 2006), trust constitutes a more positive strategy than
significant difference between OTA and airline carrier switching costs. Moreover, while previous research has
customers with respect to e-loyalty (F ¼ 0.510; P40.50). recommended switching costs as a primary means of
Finally, we tested if the travel purpose (e.g., personal vs building customer loyalty (Lin et al, 2006), difficulties
business) influenced the dependent variable, again find- arise with such a strategy in an online environment
ing no significance difference (F ¼ 0.94; P40.90). characterized by large numbers of viable substitutes
(Bendapudi & Berry, 1997; Chow & Holden, 1997). To
Discussion this end, interventions that improve the quality of
By investigating the interplay of trust and switching customers’ interactions with an e-service provider’s
costs, this study extends e-loyalty research in two ways. website offer a cost-effective alternative aimed at promot-
First, trust and switching costs foster different types of ing trusting beliefs about the ability, benevolence, and
commitment on the part of customers (Zins, 2001); integrity of a specific e-service provider.

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198 Understanding online customers’ ties to merchants Michelle Carter et al

Trust research suggests actionable interventions that suggests that because some switching costs interven-
e-service providers can employ to enhance customers’ tions do promote relational bonds, e-service providers
e-service experiences and promote loyalty. First, e-service may incorporate certain types of switching costs as a
providers can promote trusting beliefs of competence ‘side-bet’ alongside trust-building measures (Fullerton,
through advanced search and comparison features (Vance 2003). For instance, e-service providers offering live
et al, 2008) as well as quick and secure transaction chat and/or 24-h support can build feelings of collective
processing (Kim, 2008). Displaying institutional endorse- identity and shared values, giving rise to personal
ments and providing links to partner organizations can relationship loss costs. Personalizing e-services by provid-
further reinforce perceptions that a provider’s website ing recommendations based on customers’ prior selec-
has the capabilities and features necessary to conduct tions (e.g. seat and meal preferences) offers another
transactions in a timely and convenient manner opportunity to create relational switching costs without
(McKnight & Chervany, 2001). Second, e-service provi- damaging the effects of trust. Importantly, given work
ders can foster trusting beliefs about their integrity by suggesting that economic incentives and entrapment
ensuring the provision of full contact details, as well as may not be sufficient to secure loyal customers (Dowlling
accurate, timely, and complete information (Butcher & Uncles, 1997; Gwinner et al, 1998), creating switching
et al, 2001). This encourages stronger commitment on costs based on knowledge of a customer’s preferences,
the part of the customer as information contributes to responsiveness to their specific needs, and service quality
trust by signalling the company’s commitment to the may constitute more effective customer retention strate-
customer-service provider relationship. gies (Fullerton, 2003; Evanschitzky et al, 2006).
Third, e-service providers can engender positive
perceptions about their commitment to maintaining Limitations and future research
customer relationships by delivering support via multiple A primary limitation is our research context. We
contact channels. For example, live online chat, 24-h employed one type of e-service, online travel services,
support, blogs, and/or message boards (Evanschitzky et al, to examine the influence of trust, switching costs, and
2006). Live chat and 24-h support positively influence their interaction on e-loyalty. Future research should
beliefs about the provider’s benevolence by bringing a explore the extent to which the findings presented here
sense of immediacy into the transaction process. These transfer to other types of e-services, which are not
services also provide reassurances with respect to timely as commoditized. Further, this study did not directly
problem resolution, influencing beliefs relating to the examine the impacts of affective and continuance
provider’s ability to complete transactions (Bart et al, commitment on e-loyalty. However, our focus on the
2005). Additionally, interactive tutorials, blogs, and/or strategies that give rise to different forms of commitment
message boards promote rapid acquisition of skills provides a basis for future research to develop the
needed to use a website efficiently. These measures make requisite nomological network surrounding e-loyalty. In
it possible for customers to easily explore deeper features the future, researchers may wish to examine the extent to
of a site providing greater visibility and accessibility of which affective and continuance commitment mediate
information, thereby influencing trusting beliefs about the effects of trust and switching costs. Additionally,
provider integrity. some researchers might question why we did not capture
This study’s finding that trust does not positively data relating to actual purchases. This study operationa-
moderate the influence of switching costs on e-loyalty lized e-loyalty consistent with existing loyalty frame-
at all levels of switching costs paints a complex picture works (Oliver, 1999; Butcher et al, 2001) as well as prior
for e-service providers seeking to foster e-loyalty. Except information systems research (see, e.g., Cyr et al, 2007;
at average levels of both, we found switching costs and Cyr, 2008). By conceptualizing e-loyalty as conative, or
trust compensatory, rather than supplementary strategies intention-based, we contribute to the literature by deepen-
for fostering e-loyalty. Indeed, our results suggest that ing our understanding of cognitive and affective percep-
creating high switching costs may undermine the positive tions that motivate repurchase intentions. Future research
effects of trust. This is consistent with prior work finding should extend this study longitudinally to explore the
that a high level of continuance commitment undermines interaction and influence of trust, switching costs, and
affective commitment (Fullerton, 2003), as well as market- e-loyalty on behavioural, or action-based, loyalty.
ing research, which indicates that raising the perceived Despite this study’s finding that trust does not prime a
complexity of services may actually erode the effects of person’s overall perceptions of switching costs, one might
trust on e-loyalty (Burnham et al, 2003). Since trust also has argue that trust is not necessarily distinct from the first-
a greater effect on e-loyalty than switching costs, some order relational facets of switching costs. For example,
might take this to mean that e-service providers should trust might have a direct effect on perceived costs
abandon attempts to use switching costs in favour of associated with ending a relationship with an e-service
building trust as a means to foster e-loyalty. provider (i.e., trust increases the emotional discomfort
However, our evidence also indicates that trust associated with switching). Nevertheless, consistent with
increases the effect of switching costs on e-loyalty when research on relationship marketing (Joshi & Arnold,
switching costs are relatively low. In fact, research 1997) and commitment (Bendapudi & Berry, 1997;

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Understanding online customers’ ties to merchants Michelle Carter et al 199

Zins, 2001; Fullerton, 2003; Evanschitzky et al, 2006), this Conclusion


study’s theory of e-loyalty clearly suggests that while trust A desire to understand the relative influence of e-loyalty
and switching costs have relational components, their building strategies employed by e-service providers
underlying cognitive processes and the online interven- motivated this study. Specifically, we compared the direct
tions that give rise to them, differentiate these compo- and interaction effects of trust and switching costs on
nents. Further, our analysis demonstrated discriminant customer loyalty to online travel service providers.
validity among the first-order dimensions of trust and Although we found that trust and switching costs
first- and second-order dimensions of switching costs. directly, and positively, impact e-loyalty, our analyses
Consequently, our theory and associated analyses sup- suggest that trust exerts the stronger influence. Further,
port the notion that trust and switching costs represent our results show that trust and switching costs serve as
distinct concepts. Future research should examine compensatory, not supplementary, strategies. For the
whether trust and switching costs remain discriminant practicing professional, these findings direct attention
in the context of behavioural loyalty. to the power of strategies that foster affective commit-
Finally, this study does not explicitly consider percep- ment grounded in positive beliefs about e-service provi-
tions of risk relating to the broader transaction environ- ders. Given evidence of trust’s high impact in the
ment. Online trust research examines how trusting presence of low switching costs, our study suggests that
beliefs help consumers overcome perceived risk to building high switching costs into a trusting relationship
complete transactions with unfamiliar e-service providers has a harmful effect on e-loyalty. Conversely, our findings
(McKnight & Chervany, 2001; McKnight et al, 2002). also indicate that e-service providers who have histori-
Because we examined intentions to revisit, we see risk as cally created cost barriers to switching likely fail to realize
just one of many switching costs (e.g., economic risk expected benefits from building trusting relationships
costs, benefit loss costs, and monetary loss costs) salient alongside high switching costs. In the future, researchers
to understanding consumer relationships with known e- may extend our study to examine trust’s influence on
service providers. To extend our understanding of trust additional post-adoption contexts including relation-
and risk’s influence, future researchers may investigate ships with diverse types of Internet-based service provi-
how a broader definition of risk shapes specific risks ders (e.g., online banking or electronic health records) or
embedded in switching costs, as well as the influence of decisions to continue to use of workplace technologies or
risk definition on trust’s relationship with e-loyalty. mobile-commerce.

About the authors

Michelle Carter is an assistant professor at the University Information Systems from the College of Business at
of Nebraska, Omaha. She holds a Ph.D. from Clemson Florida State University. His work has appeared in MIS
University. Her work has appeared in MIS Quarterly Executive, Quarterly, Journal of Management Information Systems,
ACM Transactions on Management Information Systems, and Journal of Applied Psychology and Organizational Behavior
the proceedings of various IS conferences and workshops. and Human Decision Processes.

Ryan T. Wright is an assistant professor at the University Richard Klein is an associate professor of Manage-
of Massachusetts Amherst. He holds a Ph.D. from ment Information Systems at Florida International Uni-
Washington State University, an MBA and B.S. in Business versity’s Chapman Graduate School of Business Admin-
from the University of Montana. He is published in the MIS istration and has also served on the faculty of Clemson
Quarterly, Journal of Management Information Systems, Com- University. His research has been published in top
munications of the AIS, and other peer-reviewed journals. journals, including Decision Sciences, European Journal
of Information Systems, Journal of Management Informa-
Jason Thatcher is an associate professor at Clemson tion Systems, MIS Quarterly, and the Journal of Operations
University. He received his Ph.D. in Management Management.

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202 Understanding online customers’ ties to merchants Michelle Carter et al

Appendix A

Table A1 Psychometric properties for first-order factors


Item Item description Loading CR AVE a

Customer loyalty (Gefen, 2002)


Loy1 I would consider the online service provider as first choice when buying airline tickets 0.90 0.95
Loy2 I am inclined to do more business with the online service provider 0.92

Switching costs (Burnham et al, 2003)


(1) Procedural Switching Costs:
(a) Economic Risk Costs:
S1 I would worry that the service offered by other service providers won’t work as well as expected 0.79 0.93 0.70 0.91
S2 If I try to switch service providers, I might end up with bad service for a while 0.85
S3 Switching to a new service provider will probably involve hidden costs/charges 0.83
S4 I am likely to end up with a bad deal financially if I switch to a new service provider 0.82
S5 Switching to a new service provider will probably result in some unexpected hassle 0.89
S6 I don’t know what I’ll end up having to deal with while switching to a new service provider 0.83

(b) Evaluation costs


S7 I cannot afford the time to get the information to fully evaluate other service providers 0.80 0.89 0.66 0.83
S8 How much time/effort does it take to get the information you need to feel comfortable 0.89
evaluating service providers?
S9 Comparing the benefits of my service provider with the benefits of other service providers takes 0.86
too much time/effort even when I have the information
S10 It is tough to compare the other service providers 0.69

(c) Learning costs


S11 Learning to use the features offered by a new service provider as well as I use my service 0.90 0.95 0.82 0.93
will take time
S12 There is not much involved in understanding a new service provider well (R) 0.89
S13 Even after switching, it would take effort to get up to speed with a new service 0.92
S14 Getting used to how another service provider works would be easy (R) 0.90

(d) Set-up costs


S15 It takes time to go through the steps of switching to a new service provider 0.90 0.94 0.84 0.91
S16 Switching service providers involves an unpleasant sales process 0.92
S17 There are a lot of formalities involved in switching to a new service provider 0.94

(2) Financial switching costs:


(a) Benefit loss costs
S18 Switching to a new service provider would mean losing or replacing points, credits, services, 0.91 0.89 0.72 0.81
and so on that I have accumulated with my service provider
S10 How much would you lose in credits, accumulated points, services you have already paid for, 0.91
and so on if you switched to a new service provider? (nothingy a lot)
S20 I will lose benefits of being a long-term customer if I leave my service provider. 0.72

(b) Monetary loss costs


S21 Switching to a new service provider would involve some up-front costs 0.89 0.85 0.74 0.66
(set-up fees, membership fees, deposits, etc.)
S22 How much money would it take to pay for all of the costs associated 0.83
with switching service providers?

(3) Relational switching costs:


(a) Personal relationship loss costs
S23 I would miss the community of users I associate with at my current service provider 0.79 0.94 0.78 0.91
if I switched providers
S24 I am more comfortable interacting with the people working for my service provider 0.89
than I would be if I switched providers
S25 The people where I currently get my service matter to me 0.93
S26 I like talking to the people where I get my service 0.92

(b) Brand relationship loss costs


S27 I like the public image my service provider has 0.91 0.92 0.85 0.82
S28 I support my service provider as a firm 0.94

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Understanding online customers’ ties to merchants Michelle Carter et al 203

Table A1 Continued
Item Item description Loading CR AVE a

Trust (Bhattacherjee, 2002)


(1) Ability
T1 The online service provider has the skills and expertise to perform transactions in 0.95 0.97 0.91 0.95
an expected manner
T2 The online service provider has access to the information needed to handle transactions 0.97
appropriately
T3 The online service provider has the ability to meet most customer needs 0.94

(2) Integrity
T4 The online service provider is fair in its conduct of customer transactions 0.94 0.95 0.87 0.92
T5 The online service provider is fair in its use of private customer data collected during a 0.95
transaction
T6 The online service provider is fair in its customer service policies following a transaction 0.90

(3) Benevolence
T7 The online service provider is open and receptive to customer needs 0.93 0.96 0.89 0.94
T8 The online service provider keeps its customers’ best interests in mind during most transactions 0.96
T9 The online service provider makes good-faith efforts to address most customer concerns 0.94

Control: Transactional frequency


C1 On average, how many times have you used the online service provider to purchase airline 0.94 0.95 0.90 0.89
tickets? (Very Infreq y. Very Freq.)
C2 On average, how many times have you purchased tickets from an online vendor? 0.95
(Not very often y. Very Often)

Appendix B

Table B1 Common method variance and exogenous variables. For this reason, we follow past
literature on common method bias partialling to test if
Factor/adjusted eLOY Trust SC
this study has been affected by method bias. Podsakoff &
SC 0.40* Organ (1986) propose a two-step approach in testing
eBun adj. SC 0.36* for common method variance. First, as they suggest, we
TRUST 0.69* executed a one-factor extraction test on the constructs in
eBun adj. Trust 0.67* the nomological network as per Harman (1967). This
SC 0.40* analysis, although exploratory, shows if a single factor
eBun adj. SC 0.41*
can explain a majority of the variance. Sixteen factors
INFO 0.76*
were extracted with eigen values of one or greater. The
eBun adj. INFO 0.76*
total explained variance for these extracted factors was
FinCost 0.70*
eBun adj. FinCost 0.69*
69% with the first factor accounting for only 11% of the
ProcCost 0.96* variance. Although Harmon’s one-factor test does provide
eBun adj. ProcCost 0.96* evidence if there is a common method issue, there is no
RelCost 0.78* guideline as to the cut-off value for the variance of the
eBun adj. RelCost 0.77* first variable. The reason for this is that the first variable
eBun 0.06 0.02 0.05 in the extraction would account for both the method
effect and its actual trait value (Jayachandran et al, 2005).
* Correlation significant at Po0.01.
eBun – e-Bundling, SC-Switching Cost, INFO – Information Transparency, Therefore a second step is needed.
FinCost – Financial Costs, ProcCost – Procedural Cost, RelCost – Relative Drawing from Lindell & Whitney (2001), we analysed the
Costs. correlations between constructs. This is typically done
through an a priori marker variable that theoretically should
not be correlated with the dependent variable of interest. If
Common method analysis a method analysis is undertaken after data collection, as in
Common method bias is always a concern when design- this case, Lindell and Whitney suggest you choose a latent
ing and executing survey research. This is especially true variable that is not in the nomological network and again
when capturing consumers’ perceptions of the endogenous theoretically unrelated to the dependent variable. In our

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204 Understanding online customers’ ties to merchants Michelle Carter et al

case we use e-bundling, or the ‘aggregation of information e-bundling marker, all variables represent the legitimate
goods by an online vendor’ (Bakos & Brynjolfsson, 2000, correlation between the constructs as well as any covariance
p. 63). Table B1 presents the adjusted correlations of the caused by the method effect; hence it is rational to
related variables. In each instance the adjusted correla- determine that the nomological relationships presented
tions remained significant at Po0.01. Considering the are strongly supported by the data.

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